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Allison Transmission Reports Sales Increase in 2013

April 17, 2014

Allison Transmission Holdings Inc., a global provider of commercial duty fully-automatic transmissions and hybrid-propulsion systems, has reported net sales for the quarter of $491 million, a 1 percent increase from the same period in 2012. Adjusted Net Income, a non-GAAP financial measure, for the quarter was $78 million, compared to Adjusted Net Income of $46 million for the same period in 2012, an increase of $32 million. Diluted earnings per share for the quarter were 23 cents.

The increase in net sales was principally driven by higher demand in the Service Parts, Support Equipment & Other end market, continued recovery in the North America On-Highway end market, our largest, and improved demand conditions in the Outside North America On-Highway end market largely offset by previously contemplated reductions in U.S. defense spending, and weakness in the Outside North America Off-Highway end market. Our North America Off-Highway end market continues to be weak, but experienced some modest sequential improvement.

Adjusted EBITDA, a non-GAAP financial measure, for the quarter was $153 million, or 31.1 percent of net sales, compared to $132 million, or 27.1 percent of net sales, for the same period in 2012. Excluding costs ($7 million) to conclude a new five-year labor agreement and a product warranty charge ($9 million) for specific product issues, Adjusted EBITDA for the fourth quarter of 2012 was $148 million, or 30.4 percent of net sales. Adjusted Free Cash Flow, also a non-GAAP financial measure, for the quarter was $105 million compared to $82 million for the same period in 2012.

Fourth Quarter Net Sales by End Market

End Market

Q4 2013

Net Sales ($M)

Q4 2012

Net Sales ($M)

% Variance

North America On-Highway

210

188

12%

North America Hybrid-Propulsion Systems for Transit Bus

32

32

0%

North America Off-Highway

14

17

(18%)

Defense

35

74

(53%)

Outside North America On-Highway

86

73

18%

Outside North America Off-Highway

14

30

(53%)

Service Parts, Support Equipment & Other

100

73

37%

Total Net Sales

491

487

1%

Fourth Quarter Highlights

North America On-Highway end market net sales were up 12 percent from the same period in 2012 principally driven by higher demand for Rugged Duty Series, Highway Series and Bus Series models, and essentially flat on a sequential basis principally driven by higher demand for Bus Series models offset by lower demand for Pupil Transport/Shuttle Series and Rugged Duty Series models.

North America Hybrid-Propulsion Systems for Transit Bus end market net sales were flat with the same period in 2012, and up 113 percent on a sequential basis principally driven by intra-year movement in the timing of orders.

North America Off-Highway end market net sales were down 18 percent from the same period in 2012 principally driven by lower demand from hydraulic fracturing applications, and up 56 percent on a sequential basis, the first sequential increase since the first quarter of 2012, principally driven by higher demand from hydraulic fracturing applications, according to the company.
Service Parts, Support Equipment & Other end market net sales were up 37 percent from the same period in 2012 principally driven by higher demand for North America service parts, and global On-Highway support equipment commensurate with increased transmission unit volumes, and up 9 percent on a sequential basis principally driven by higher demand for global service parts and support equipment.

Gross profit for the quarter was $211 million, an increase of 9 percent from gross profit of $194 million for the same period in 2012. Gross margin for the quarter was 43.1 percent, an increase of 320 basis points from a gross margin of 39.9 percent for the same period in 2012. The increase in gross profit from the same period in 2012 was principally driven by costs ($7 million) and charges ($8 million) to conclude a new five-year labor agreement in 2012.

Selling, general, and administrative expenses for the quarter were $87 million, a decrease of 22 percent from $112 million for the same period in 2012. The decrease was principally driven by $12 million of lower intangible asset amortization, a product warranty charge ($9 million) for specific product issues in 2012 and charge ($1 million) to conclude a new five-year labor agreement in 2012, according to the company.

Engineering – research and development expenses for the quarter were $24 million, a decrease of 13 percent from $28 million for the same period in 2012. The decrease was principally driven by reduced product initiatives spending.

Fourth Quarter Non-GAAP Financial Measures

Adjusted EBITDA for the quarter was $153 million, or 31.1 percent of net sales, compared to $132 million, or 27.1 percent of net sales, for the same period in 2012. The increase was principally driven by costs ($7 million) to conclude a new five-year labor agreement in 2012, a product warranty charge ($9 million) for specific product issues in 2012 and reduced product initiatives spending.

Adjusted Net Income for the quarter was $78 million compared to $46 million for the same period in 2012. The increase was principally driven by increased Adjusted EBITDA and charges ($9 million) to conclude a new five-year labor agreement in 2012.

Adjusted Free Cash Flow for the quarter was $105 million compared to $82 million for the same period in 2012. The increase was principally driven by increased net cash provided by operating activities partially offset by increased capital expenditures. The increase in capital expenditures was principally driven by increased investments in productivity and replacement programs partially offset by lower product initiatives spending, according to the company.

Allison said it expects 2014 net sales to increase in the range of 3 to 6 percent, an Adjusted EBITDA margin in the range of 32 to 34 percent, and an Adjusted Free Cash Flow in the range of $375 to $425 million, or $2.00 to $2.25 per diluted share. Capital expenditures are expected to be in the range of $60 to $70 million, which includes maintenance spending of approximately $60 million. Cash income taxes are expected to be in the range of $10 to $15 million.

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